If you are unfamiliar with the mortgage process - maybe you are a first time homebuyer or have not purchased a home in a long time - below is a quick summary of the five steps in the mortgage process.
Prequalification
Before you actually go through the paperwork of a loan application you will be asked to "pre-qualify". Your realtor may refer you to a lender to get you prequalified so that when you look at houses, the sellers know that you are a serious buyer with the money to back up any offers you make.
In prequalification, the lender gather information from you about your income and debts, and makes a financial determination, subject to later verification during the underwriting process, about how much home you may be able to afford. It's good to know how expensive a home you can afford before you go shopping for one.
Application
The "application" is actually the beginning of the loan process, and occurs after you have found a property that you want to buy. You complete a mortgage application with the loan officer and supply all of the required documentation for processing. (tax returns, pay stubs, etc.) The type of mortgage best for you and the various fees and down payment options are discussed at this time. You will receive a "Good Faith Estimate" that itemizes the rates, payments, and all the costs involved in your new loan. At this time you may "lock-in" the interest rate of the mortgage at today’s going rate.
Processing of Your Estimated Loan
The lender enters your information into the underwriting system, which provides the lender with a list of the documentation needed to achieve loan approval. The "processor" reviews your credit reports and documentation to verify your employment, debts, and payment history. If there are late payments, collections, etc. the processor will request a written explanation from you. The processor also reviews the property appraisal and checks for issues that may effect the final loan approval. The processors job is to put together the entire package for the underwriter.
Underwriting Your Loan
The "underwriter" is responsible for determining whether the package prepared by the processor meets all the lenders criteria. If the lender needs more information, the loan will be held up until the lender contacts you and you provide the additional information or documents.
If the application package meets all the lenders criteria, then the lender will offer a full loan approval. This often depends on the resolution of challenging credit, income or property issues that arise during the underwriting process.
If the underwriter gives full loan approval then the lender issues a commitment letter to lend, orders the title insurance, clears all contingencies, and then schedules a closing time.
Closing
The "closing" will occur after the lender gives a full loan approval and clears any closing conditions. At closing, the lender "funds" the loan with a cashiers check, draft or wire to the closing agent who disburses funds in exchange for the title to the property. This is the point at which you finish the loan process and actually buy the house, subject to the lenders loan. Closings occur at different places depending on the State in which the sale takes place. In some states, a title company or escrow company is used, while other states require that the closing takes place in an attorney's office.
Summary
By helping you understand the five steps to getting a mortgage, we hope to make the process easier and less stressful than it otherwise might be. If you have any questions about the process or are ready to get pre-qualified, call us today and let us help you get your next home.
Erick Larson is a Realtor serving buyers and sellers of Sonoma County Real Estate. He is also an owner of Home & Value Advisors, which provides clients expertise in not only Real Estate Sales, but also Architectual Design, Home Restoration, and Property Investment. |
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